Who Gets to Be “Rich”?

And why do most people seem to think they are “middle class”?

The other day, a Slate Money listener wrote in to ask one of those evergreen, impossible-to-resolve questions that everybody loves to debate: Who counts as “rich” in this country? Or, as caller Matt from D.C. put it to the podcast panel, “What level of income do you think makes someone upper class in the United States?”

Jordan Weissmann is Slate’s senior business and economics correspondent.

Ask most Americans that question, and their response will usually boil down to, “Some guy who makes more money than I do.” Just 1 percent of U.S. adults are willing to call themselves “upper class,” according to the Pew Research Center (but no word on what those people actually make). Almost nine in 10, meanwhile, consider themselves some flavor of “middle class”—upper, lower, or simply middle.

The issue of who counts as wealthy tends to get the most attention when Washington starts contemplating tax hikes. Most Americans think “the rich” should pay more to the IRS—the trick is figuring out how to define those loaded so-and-sos. The most basic way to do it: look at the income distribution and pick a cutoff. According to the World Top Incomes Database, a household income of about $113,000 lands you at the top 10th, while $394,000 makes you a bona fide member of the 1 percent. You could reasonably argue that anybody who earns above those thresholds is, in a sense, rich—or at least makes a relatively uncommon amount of money.

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There’s also no reason to limit ourselves to a simple binary, rich or not rich. Take Tim Noah’s old taxonomy of the well-to-do. As he argued in Slate some years ago, it’s useful to think of the top 10 percent as the “sort of rich,” the 1 percent as the straightforward “rich,” and the 0.1 percent as the “stinking rich.” These always seemed like reasonable distinctions to me. If we have everyday language to capture different shades of middle class, no reason not to do the same for wealth.

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It’s best to think about the question of who’s rich in terms of accumulated wealth, not annual income.

Lately, though, I’ve been thinking about the question of who’s rich in a slightly different light, thanks to a book titled Chasing the American Dream, by Mark Rank, Thomas Hirschl, and Kirk Foster, which takes a thoughtful and slightly unusual approach to framing the idea of class. Instead of just looking at the income distribution in a given year, they trace how Americans see their earnings evolve over the course of adulthood and calculate the odds that any of us will experience temporary moments of poverty or affluence.

Those affluent moments are more common than you might think. More than 76 percent of Americans get to experience the joys of a six-figure household income for at least one year, just more than half will make $150,000 or more at some point, and about 20 percent hit the $250,000 mark at least once, which these days would put them within the top 2 percent of earners.

But incomes are erratic. According to Rank and his collaborators, just half of Americans hit six figures for five or more years, and only one-third manage it for a decade total. Meanwhile, less than 2 percent cross the quarter-million-dollar threshold for at least 10 years of their lives. Just 1 percent do it for 10 consecutive years.

Why do our incomes rise and fall so much? People get sick and leave work. They get bonuses. They spend a year pulling enormous amounts of overtime. Parents leave their careers to care for children or cut down to part-time hours. Life isn’t a steady march, and nor are our incomes. This, I think, should complicate our idea of class. Quite a few of us get our 15 minutes of affluence, but sustaining it is hard.

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Anyone who is wealthier than me is a sociopath who lies cheats and steals to get their ill-gotten gains. Anyone poorer than me is a lazy oaf who suckles at the teat of our bloated welfare state. More...

That’s why it’s better to think about the question of who’s rich in terms of accumulated wealth instead of annual income (which in turn is a good argument for a wealth tax). Your net worth will bobble around with the stock market and home prices, but compared with income, it’s a relatively stable marker of how financially set you really are. It also takes into account things such as inheritance that won’t show up on your W-2 each tax season. Estimates tend to vary depending on the source of data, but according to the Russell Sage Foundation, the top 10 percent of American households have a net worth of at least $763,000; the top 5 percent hover around $1.3 million. It’s safe to say that if an American is worth more than three-quarters of a million dollars, she’s at least sort of rich.

That said, wealth has its own problems as a measure. An old widow with an expensive home might be house-rich but cash-poor. A couple might pull down $250,000 every year but fritter it away trying to live like the stinking rich instead of the sort-of rich. In which case, they’d fall into another category: the irresponsible rich. Of course, that couldn’t possibly be you. You’re middle class. Right?